In September, the Department of Labor reported the creation of 148,000 jobs. Analysts had anticipated a figure closer to 180,000, yet the unemployment rate nonetheless saw a slight decline, dropping by a tenth of a percent to 7.2 percent.
This lackluster jobs report provides the Federal Reserve with further justification to persist in its practice of generating $85 billion each month to support both mortgage and treasury markets. The Fed maintains that this influx of capital will somehow stimulate job creation. This notion raises significant doubts, wouldn’t you agree?
It’s no wonder that the jobs the Fed promised have yet to materialize. Meanwhile, the repercussions of their aggressive monetary policy are becoming increasingly apparent, particularly in the stock market. Under these extraordinary monetary measures, stock prices are soaring to unprecedented levels.
At Economic Prism, we don’t support this aggressive market intervention. However, it’s hard to ignore its impact, and standing in its path is not a viable option.
Instead, we might as well embrace the rise of stock prices… and you should, too. The future trajectory of stock values is unpredictable, with no clear sign of when a downturn might occur. Yet, under the Fed’s influence, it seems that stocks might keep climbing indefinitely.
Provocatively Accurate
Following the indefinite postponement of any tapering of asset purchases last month, it’s uncertain what steps the Fed will take… especially with Janet Yellen scheduled to take the helm in January. It raises the question: will they ever unwind their asset purchase program?
“The issue is not tapering,” stated Marc Faber on Monday. “The real question is when will they increase the asset purchases to $150 billion, $200 billion, or even a trillion dollars per month.”
In case you’re unfamiliar, Faber is the publisher of The Gloom, Boom & Doom Report. Although his question might initially seem overly audacious, he has a remarkable track record of being provocatively accurate.
While most economic commentators were predicting tapering ahead of the Fed’s September meeting, Faber was forecasting “QE infinity.” At the time, his assertion may have sounded extreme, but history proved him correct – and the same may easily occur again.
The reality is that the Fed has limited options. They have encouraged the U.S. government to accumulate debt and have backed an unsustainable system of entitlements. Currently, over 100 million people rely on these benefits. If the Fed were to halt its relentless expansion of the monetary base, these benefits, entitlements, food assistance, and other transfer payments would abruptly cease.
Economic Frankenstein
The U.S. economy, particularly the segment reliant on government support, has morphed into a grotesque entity. Without the Fed’s endless provision of credit, this situation would have spiraled out of control long ago, resulting in a collapse.
Year after year, the Fed has attempted to enhance the economy by giving it excessive amounts of money. Congress and the President have eagerly accepted this cheap credit as it allows them to seemingly deliver benefits without any cost to a population increasingly dependent on handouts.
Unfortunately, the Fed’s well-meaning efforts have spawned an economic Frankenstein. Like Victor, they assumed their creation would be magnificent, but instead, they have produced a fearsome and grotesque monster.
“Our mission, as laid out by Congress, is critical: to maintain price stability, to promote maximum sustainable growth in output and employment, and to cultivate a stable and efficient financial system that serves all Americans equitably,” remarked Ben Bernanke upon his swearing-in as Federal Reserve Chairman.
By all accounts, Bernanke missed the mark. From our perspective, he should never have ventured down this path in the first place. With the benefit of hindsight, what will Bernanke reflect upon as he concludes his tenure?
“I had begun life with benevolent intentions and longed for the moment I could put them into action and benefit my fellow beings,” said Victor. “Now all was lost; instead of the tranquility of conscience that allowed me to reflect on the past with satisfaction and gather hope for the future, I was overwhelmed by guilt and remorse, leading me to a hell of unbearable torment that no words can express.”
Thanks to Bernanke’s policies, the monetary foundation of America has been forever compromised. This economic Frankenstein is his legacy to the world.
Sincerely,
MN Gordon
for Economic Prism
